Reddit’s IPO Gamble
Speaker A: When I called up Priya Anand to.
Speaker B: Talk about Reddit, I wanted to start with the company’s users.
Speaker B: Priya is a tech reporter at Bloomberg and she’s covered Reddit as it got ready to go public on Thursday.
Speaker B: What I wanted to know is, what makes a Redditor a Redditor?
Speaker A: Who is this person like?
Speaker A: What characteristics do they possess?
Speaker A: What behaviors do they engage in?
Speaker A: Can you think of the ideal Reddit user?
Speaker C: Honestly, at this point, it’s probably anyone on their phone, on the Reddit app.
Speaker C: Reddit has so many niche communities and broad communities.
Speaker C: People post pictures of their pets.
Speaker C: People ask for relationship advice, people ask, I don’t know if you can have this in your podcast, but am I the a******?
Speaker C: They tell these stories.
Speaker B: Yeah, we can say that here.
Speaker C: The site is somehow still in the top ten in the US.
Speaker C: So really, a Reddit user could truly be any among us.
Speaker C: And a lot of people these days, I’ve heard, are adding Reddit to their Google searches to try to get responses that are like, by a personal know.
Speaker C: Let me find someone’s experience with this thing on the Internet that I have a question about.
Speaker A: I myself have been drawn to a.
Speaker B: Subreddit called Daniel Tiger Conspiracy, where parents of young children complain about kids TV.
Speaker B: The thing about Reddit, and the thing that, in my opinion, sets it apart from other platforms is how its users feel.
Speaker B: Like it or not, they are passionate about Reddit.
Speaker C: My biggest takeaway in covering the company over the last couple years is that it is absolutely a love hate relationship.
Speaker C: Anytime the company makes a decision that even a subset of people on Reddit don’t like, there are vocal complaints about it.
Speaker C: There will be protests, there will be.
Speaker B: Blackouts even on the subreddit Wall street bets, which you likely remember from its.
Speaker A: Role in boosting GameStop and other meme stocks.
Speaker B: Posters aren’t totally sure Reddit’s IPO is a good idea, but hey, they’re posting.
Speaker C: Wall street bets has more than 15.1 million people in there.
Speaker C: They describe themselves as it literally says, 15.1 million degenerates.
Speaker C: So people love to hate Reddit.
Speaker C: People who use Reddit love to hate on Reddit.
Speaker C: But guess what?
Speaker C: They’re still there.
Speaker B: They’re still there.
Speaker B: And now that Reddit is a public.
Speaker A: Company, some of them are shareholders.
Speaker A: Today on the show, the front page.
Speaker B: Of the Internet grows up.
Speaker B: Maybe.
Speaker B: I’m Lizzie O’Leary and you’re listening to what next?
Speaker B: TBD, a show about technology, power, and how the future will be determined.
Speaker B: Stick around.
Speaker B: Reddit has been around for almost 20 years now.
Speaker B: A long time for a social platform or discussion forum or whatever.
Speaker B: Exactly.
Speaker B: Reddit is.
Speaker B: And for most of that time, it’s fair to say that Reddit’s been a bit of a wild west, a place where devoted users have a ton of power for good, for ill, and for just weird.
Speaker C: There was this sort of famous and Reddit lore moment when Greenpeace asked to have the public name a whale as part of a campaign involving whale hunting awareness.
Speaker C: And redditors voted and used their power to basically get the whale named Mr.
Speaker C: Splashypants instead of all these other more serious names.
Speaker D: And the Reddit community really, and the rest of the Internet, rather, really got behind this.
Speaker D: Facebook groups were getting created, Facebook applications were getting created.
Speaker D: The idea was, vote your conscience, vote for Mr.
Speaker D: Splashy pants.
Speaker D: And people were putting up signs in the real world about this whale.
Speaker D: And this was the final vote when it all was cleared, 78% of the votes.
Speaker D: And give you an idea of the landslide, the next highest name pulled in three.
Speaker D: Okay.
Speaker C: And that just shows the whole meme stock thing was like 15 years in the making at this point, right?
Speaker C: In a way, it’s like a part of the Internet that just hasn’t really changed that much over the years.
Speaker C: You look at it and it’s almost like how Craigslist, you look at it and it’s like, what year am I in?
Speaker C: You’ll never know, right?
Speaker C: Just looking at Craigslist and Reddit kind of feels the same way in some sense.
Speaker C: It sort of feels like this relic of this previous era of the Internet that has kind of stuck around.
Speaker C: And it’s a place where any question you’re looking to get answered, like someone else is going to have talked about it on Reddit.
Speaker A: Why do you think Reddit decided to go public now?
Speaker A: After all, there has been talk of an IPO for years.
Speaker C: I don’t think it would have been their first choice to go right now, given that they filed confidentially two years ago.
Speaker C: And then the markets took a turn and it was like, okay, what now?
Speaker C: And investors in the public markets clearly became much more focused on profitability.
Speaker C: And you see now when Reddit put out its numbers that they started focusing the company on that more over time.
Speaker C: And so I don’t think 2024 right now was necessarily what they had in mind when they filed confidentially.
Speaker C: It’s very unusual to have that long of a gap, and that was actually the same year that Reddit was in the news all the time because of all the meme stocks that were going crazy thanks to Wall street bets and people betting and really lifting up the stocks of companies like GameStop.
Speaker C: For example.
Speaker E: Tonight it’s Wall Street’s David versus Goliath, the struggling video game retailer GameStop.
Speaker E: Suddenly, one of the hottest stocks skyrocketing about 8000% over six months, driven by the whims of a group of armchair investors online, this has become a game.
Speaker F: It started as an idea that they were going to demonstrate that they had more power than Wall street.
Speaker F: They had more power.
Speaker C: The company was very much in the culture and in the moment around the time when it did file initially.
Speaker C: But the markets changed and they took a waiting period.
Speaker C: Like many other companies, Reddit first filed.
Speaker B: A confidential draft of its proposal to go public with the securities and Exchange Commission in 2021.
Speaker B: Back then, investors thought the company was worth some $10,000,000,000.03 years later, that valuation dropped to about six and a half billion, with shares priced at $34 apiece.
Speaker B: On Thursday, Reddit CEO Steve Huffman told CNBC that offering Reddit users and moderators a chance to buy shares was part of the company’s ethos, a risk, but one he felt was worth taking.
Speaker F: It’s a free market.
Speaker F: I hope they believe in Reddit and support Reddit, but the goal is just to get them in the deal, just like any professional investor would.
Speaker B: In Thursday’s trading, investors were clearly eager to get their hands on Reddit stock.
Speaker B: Shares ended the day trading almost 48% higher at $50.31.
Speaker C: This company is seen as valuable for a number of reasons, one being Reddit is actually roughly 20 years old.
Speaker C: It was acquired by the company that owns Conde Nast a year after it was founded, spun back out again.
Speaker C: Its user base has grown over time.
Speaker C: It has this huge staying power in terms of being one of the top ten sites in the US and a very loyal and fierce user base.
Speaker C: Right?
Speaker C: I mean, part of their model relies on moderators who sort of comb through forums and set the rules for their forums and decide what’s going to fly.
Speaker C: What’s not going to fly.
Speaker C: One moderator described this to me a few days ago as being an Internet janitor.
Speaker C: And so you have these very, very loyal users who not only are returning to the platform to post there the way you might go on any other social media platform, like X, formerly known as Twitter, for example, and post something.
Speaker C: A lot of the power users are also responsible for sort of maintaining the platform, maintaining the communities on there, which is several steps, and honestly, several steps further than a lot of the other social platforms and quite a bit of work to be taking on.
Speaker C: There’s that loyalty element, too there, right?
Speaker C: It’s like these users are not just posting content on a regular basis like they might at any other place, but they’re also trying to keep the community alive and humming and presumably healthy if they’re moderating and setting the tone for it and trying to make sure nobody’s violating rules or engaging in speech that they don’t want to accept on there.
Speaker C: So that’s a whole new level of loyalty and engagement, I think, versus a lot of other social platforms to be.
Speaker A: Worth a lot of money to investors, to your users, what have you.
Speaker A: You need to have a plan to make money, even though Reddit has never been profitable.
Speaker A: So I want to talk through where the revenue comes from, both where it has come from and then the things that the company’s been doing to sort of branch out and find new revenue streams.
Speaker A: Can you take me through where the money comes from?
Speaker C: Yeah.
Speaker C: So Reddit for years, wasn’t that focused on making money, which is sort of amazing to say.
Speaker C: I mean, in their regulatory filings, they literally say that they didn’t really start focusing on monetizing until 2018.
Speaker C: Now, bear in mind, this company was founded in 2005.
Speaker C: Wow.
Speaker C: So it’s sort of like, wow, what were you doing until then?
Speaker C: But since then, they’ve built out a substantial advertising department.
Speaker B: Reddit has also created revenue streams through licensing deals with AI companies.
Speaker B: Large language models need lots of data, like Reddit conversations on which to train their algorithms.
Speaker B: So it makes sense that Reddit would charge the companies building those models for access to its data.
Speaker C: Reddit has carved out some deals with some of these companies, including Google.
Speaker C: They announced a deal earlier this year, and in regulatory filings, they say these deals will bring in a couple hundred million over the next few years.
Speaker C: Deals they signed.
Speaker C: This year, they expect to bring in about 66 million.
Speaker C: This is pretty small compared to their overall revenue, but nonetheless, they see this as a growing part of their business.
Speaker C: The fact that they can create these sort of data licensing deals and let other companies train their large language models with Reddit data.
Speaker C: The next thing is the company has talked a little bit about how it hopes to eventually sort of find ways to make more money off its user base.
Speaker C: Like if people are already selling each other services within a certain subreddit, can Reddit kind of do more to facilitate that and maybe make some money there?
Speaker C: That’s something that’s mentioned in the company filings, but is still very small.
Speaker C: And what’s sort of interesting about that is there are plenty of other companies out there in social media that have found ways to monetize their user base in these kind of veins like earlier and a little bit more aggressively.
Speaker C: Right?
Speaker C: I mean, YouTube, who can really watch a YouTube video these days, no matter how short it is, really, without dealing with a ton of ads to subscribe and get an ad free experience.
Speaker A: And then last year, Reddit made this decision that really is sort of part and parcel of the AI licensing deal.
Speaker B: To have people pay for its API.
Speaker A: Which made a lot of long term Redditors and some outside developers angry.
Speaker C: It did upset some people.
Speaker C: There were protests on Reddit once again, but the company came back and said, look, we need to be paid fairly.
Speaker C: And now you see why, right?
Speaker C: They have these AI content licensing deals.
Speaker C: But the question remains.
Speaker C: I mean, the FTC said it’s looking into such deals to bring in revenue off of user generated content.
Speaker C: And the company said it doesn’t believe it’s doing anything untoward in any way.
Speaker C: And so what comes from that remains to be seen.
Speaker C: I’ve spoken with some users who say, well, this is user generated content.
Speaker C: Maybe there could be a way for users to benefit from these deals, too, where Reddit’s going to make money.
Speaker C: And once again, everything with Reddit comes back to the user base and the loyalty of the user base.
Speaker C: And I think it remains an open question how users will actually feel as these deals become a bigger part of Reddit’s business.
Speaker C: But at the end of the know that love hate relationship exists.
Speaker C: But if you have that hate, that means you have strong feelings about it.
Speaker C: Right.
Speaker C: And you’re a power user.
Speaker A: They can’t quit.
Speaker C: Yeah.
Speaker C: The hate part of the relationship would not exist if you didn’t have some affinity.
Speaker C: Right.
Speaker B: When we come back, the journey from.
Speaker A: Internet troll to big time CEO.
Speaker A: I want to talk a little bit about Steve Hoffman, the CEO.
Speaker A: I want to talk about his evolution.
Speaker A: I feel like we could call him a freewheeling poster kind of guy, at least at one point.
Speaker A: Where would you say he has evolved to now?
Speaker C: I mean, Steve Huffman has said himself that he kind of grew up on the Internet as a young troll.
Speaker C: And he tried, actually, earlier in his tenure as CEO, he was editing comments in one subreddit by users who were criticizing him and he got called out for it.
Speaker C: And he did apologize.
Speaker C: He extensively apologized.
Speaker C: And that’s when he know he kind of grew up as a young troll on the Internet.
Speaker C: He has tried to tame the platform in other ways.
Speaker C: He did institute this broad hate speech policy after Reddit was criticized for many years over a lot of people thought the company had a laissez faire approach to these things.
Speaker C: He’s built out a larger trust and.
Speaker B: Safety team in a lot of ways.
Speaker B: Huffman is Reddit.
Speaker B: He co founded the site, wrote Code himself, and lent it a trollish vibe.
Speaker B: But he and cofounder Alexis Ohanian left their executive positions in 2009 after selling the company to Conde Nast.
Speaker B: Huffman later returned after a particularly turbulent few years.
Speaker B: Some of Reddit’s most controversial communities, like one focused on creepshots, had been exposed, and the site was grappling with how to address racism and sexism.
Speaker C: When he came back in to run the Thing in 2015, Reddit had already kind of chewed up and spit out a couple of CEOs.
Speaker C: In the years before that.
Speaker C: It was a tough job.
Speaker C: The users have opinions when the company makes decisions, and they’re not shy about it, they post about it.
Speaker C: They will make subreddits go dark if they feel they don’t like the way the company is acting about a certain policy or with a specific stance.
Speaker C: There have been these open revolts.
Speaker C: And so when Steve came back, investors were like, all right, he has the Moral high ground and the kind of the authority to say, well, like, look, I made this thing so I know what it should look like.
Speaker C: Whereas other CEOs, when they tried to tame the couldn’t, they weren’t necessarily able to withstand the backlash as much.
Speaker C: But Steve, in saying, like, this is my baby, I hand coded the site.
Speaker C: I made this, exist in the world, came in with sort of that Authority to be able to say, like, I made this.
Speaker C: Here’s what flies.
Speaker C: Here’s what doesn’t fly.
Speaker C: He can say, we never intended Reddit to be a place where XYZ and he coded the site.
Speaker B: So he has the cred to back that up.
Speaker C: Yeah.
Speaker C: He has also grown up with the role, right.
Speaker C: From being this guy who edited comments on the site and then owned up to it to building the company into more of a business.
Speaker C: Their revenue was 800 million or something of that sort.
Speaker C: Last year, he built out this advertising department, brought in executives to lead it from elsewhere, now is leading the company into IPO.
Speaker C: He has said himself that Reddit needs to grow up over time.
Speaker C: And it seems like maybe he has.
Speaker B: Too, a little bit.
Speaker A: Well, you’re getting at something that I think is really important and happens in a lot of tech companies where you have this kind of needle that has to be threaded between an enthusiastic user base and investors that want to see you act like a grown up CEO.
Speaker A: And if you go too hard in one way you get blowback from your investors, too hard in another way, you get blowback from your users.
Speaker A: But it sounds like from what you’re saying right now, that he is managing to stay comfortably in the middle.
Speaker C: He has certainly tried to thread that Needle and the company has stood its ground on changes like the API pricing change last year.
Speaker C: I mean, the fact that they have gotten to IPO after 20 years at this point does speak for itself a bit as well.
Speaker C: And I think looking at Steve Huffman’s tenure, he’s gone toe to toe with the users.
Speaker C: And there have been times where he’s also stood ground and said, here’s what’s happening and so how that’s going to evolve when the company is public.
Speaker C: What does it look like when subreddits push back and there’s backlash against a company policy when you’ve got a stock that could move in response?
Speaker C: Right?
Speaker C: We don’t know that yet.
Speaker C: We’ll see what that looks like.
Speaker C: We’ll see what content moderation issues look like.
Speaker C: In the past, some subreddits have protested over things like, should this other community be banned?
Speaker C: Is it violating rules?
Speaker C: Is it not violating rules?
Speaker C: Do we think it’s promoting a safe and healthy Reddit?
Speaker C: There’s been a lot of push and pull between the company and its users on content moderation as well.
Speaker C: There have been times when subreddits have protested saying, we think you’re not taking down this thing that is either filled with misinformation or hate speech or whatever.
Speaker C: And so what does that push and pull look like when the company needs to be responsive to public market investors, or has public market investors who are going to be responsive to issues maybe is a better way to put it, right.
Speaker C: I think that will be fascinating to see.
Speaker A: One thing that has run through everything you have said to me is how important these users are to Reddit, to the spirit of the site, but also to its bottom line.
Speaker A: And to that point, the rules are simply different for a public company.
Speaker A: Literally, the rules are different.
Speaker A: But also when you have investors and billions of dollars on the line, there can be a whole lot less tolerance for questionable behavior.
Speaker A: Do you think that’s something that concerns users or excites users?
Speaker B: What does the user base think about all of this?
Speaker C: Reddit even noted in its risk factors for the IPO and for investors that the fact that the user base, like maintaining a healthy community, is something that is in the risk factors.
Speaker C: Right.
Speaker C: Users could post things that advertisers or other people find offensive.
Speaker C: Users could revolt against the company.
Speaker C: They’re very well aware that kind of everything circles back to the user.
Speaker C: They actually, the company actually reserved a portion of its shares for the IPO, for its users.
Speaker C: Steve Huffman has said that he wants users to be shareholders, that users created this community, and they should be able to have some ownership over it as well.
Speaker C: The company has joked that users can join and become one of their corporate overlords.
Speaker C: I think it’ll be interesting to see how the user base responds to having the power they have had over this company while it was private, when it is public.
Speaker B: Yeah.
Speaker A: What if Wall street bets is like, yeah, we’re going to go dark for a few days because we’re mad.
Speaker C: I mean, subreddits have gone dark in the past when they’ve been mad about different issues.
Speaker C: Right.
Speaker C: And how Wall street bets is going to respond to the IPO, I think will also be fun to watch, for lack of a better word, just because once again, the love hate relationship with the company and the fact that power users are able to buy into the IPO alongside institutional investors.
Speaker C: And so as much as there are some vocal folks, I’ve published a story about how some folks on Wall street bets feel sort of negatively toward Reddit, the company and its IPO.
Speaker C: But at the end of the day, you don’t know what actually is going to happen, right, until things happen.
Speaker C: I mean, are people posting right now, but they actually feel a different way?
Speaker C: Are people posting how they really feel?
Speaker C: Is this a vocal minority that’s posting about how they feel?
Speaker C: Is it representative of the broader group?
Speaker C: We’re not really going to know until this all plays out.
Speaker A: If you wanted to, you could see Reddit separate and apart from the other social media networks, if we want to call it a social media network or front page of the Internet, whatever, as one of the last standing pillars of a, quote, unquote free Internet, an Internet of a certain era, right.
Speaker A: Like Tumblr doesn’t exist in the way that it did.
Speaker B: Does that disappear as a public company?
Speaker A: Is it a sort of swan song for a particular time online?
Speaker C: I think that remains to be seen.
Speaker C: Right.
Speaker C: How Reddit will change and if the community will change as a result of decisions that a public company might be making.
Speaker C: And I also think the AI deals are kind of part of the story, right?
Speaker C: The company needing to make money as a public company at some point, focusing more on profitability, trying to find ways to sort of monetize the user base, trying to find ways to sell user generated data.
Speaker C: How will the community feel about the fact that all that is happening, that their data is being used in certain ways?
Speaker C: How will they feel about these efforts to find more money making opportunities within the platform?
Speaker C: I mean, Reddit’s been able to build up its advertising business over all these years while maintaining a pretty loyal user base that has gotten it to this point and that has had influence over the markets and our culture.
Speaker C: So I think that’s really the open question.
Speaker C: Like, what does this mean for the next era of Reddit?
Speaker C: What does this mean for the next era of the Internet?
Speaker C: And the magic that Reddit has for its users now, does that start to shift as the company matures?
Speaker A: Priya Anand, thank you so much for coming on the show.
Speaker C: Thank you for having me.
Speaker B: Priya Anand is a tech reporter for Bloomberg, and that is it for our show today.
Speaker B: What next?
Speaker B: TBD is produced by Evan Campbell, Anna Phillips and Patrick Fort.
Speaker B: Our show is edited by Mia Armstrong Lopez.
Speaker B: This is Mia’s last show with us, and we will miss her smarts, empathy and sharp eye for untold stories.
Speaker B: Alicia Montgomery is vice president of audio for Slate, and TBD is part of the larger what next?
Speaker B: Family.
Speaker B: And if you are a fan of the show, I have a request for you.
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Speaker B: All right, we’ll be back on Sunday with another episode.
Speaker B: I’m Lizzie O’Leary.
Speaker A: Thanks for listening.
